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"To me...part of the process of pursuing the inexact aspects of
economics is speaking honestly to the broader public, looking
them in the eye...and then searching one’s soul to decide whether
one’s favored theory is really close to the truth."

-Robert Shiller, Project Syndicate Op-ed January 20,
2011

The above words come from the same Professor
Shiller who just a few months ago brazenly argued that our
government, when engaging the broader voting public on the
"complexities" of 'necessary' bailouts, should
employ economic propaganda.

Yves Smith over at Naked Capitalism also took exception when
Shiller's November op-ed came out, characterizing
the Yale Professor's argument as a justification
for Orwellian newspeak.

Shiller previously argued that terms like 'bailout' should
be recast as ‘orderly resolutions’ so as to make sure the voting
public 'gets it'.

From Shiller's November piece:

"When life is smooth, people tend to remain complacent,
reflecting confidence in the economy. In times of crisis, such
confidence is also vital, even if government can’t absolutely
guarantee that it’s justified.

...well-thought-out framing packages can work. They can help sell
crucial intervention packages to people who don’t fully
understand the financial system’s complexities"

In other words, Shiller is making the argument that it's not only
ok, but advisable for the government to be less than frank with
voters. During a financial crisis, Shiller argues, this lack of
candor is actually in the public's own good.

Putting aside the subject of the ethical responsibilities of
public officials for a moment, the first question is would
Shiller's recommendation even work?

To help answer that question we can turn to a recent example from
early 2008, prior to the apex of the financial crisis. On March
28, 2008, Fed Chairman Ben Bernanke, testifying before Congress
about the housing market, made the now infamous false assurance
that the subprime real estate crisis was "contained".

There are two possibilities here: either a) the Fed Chairman
honestly believed that the Fed's actions had magically put the
breaks on the real estate meltdown; or b) he was consciously
using propaganda to reassure people, as Shiller advocates.

Regardless of which of these two possibilities is correct, what
we do know is that his reassurances did absolutely nothing to
prevent the financial crisis, which hit full force later that
year in September. Perhaps Bernanke's comment postponed the
crisis, but postponement may in fact have made it worse by
allowing the problem to further fester under a blanket of false
Fed confidence.

What made Shiller's November words all the more
disheartening is that they came from from one of America's most
respected and credible academic economists. Professor
Shiller hails from Yale University and is a widely read
author and creator of the influential Case-Shiller Home Price
Index. While Shiller was not one of the academic economists skewered by Charles
Ferguson in his excellent documentary
film Inside Job, his November remarks certainly
made him a deserving target of popular criticism.

Here's to hoping Shiller's comments in his recent Project
Syndicate op-ed reflect an about face and commitment to speaking
clearly and truthfully with the public on economic matters such
as bailouts.